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Notice

Self-Regulatory Organizations; Notice of Filing of Proposed Rule Change By the National Association of Securities Dealers, Inc. To Introduce Fees for Persons That Are Not NASD Members Using the Financial Information Exchange Protocol to Connect to Nasdaq

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Start Preamble
September 5, 2003.

Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (“Act”),[1]
and Rule 19b-4 thereunder,[2]
notice is hereby given that on July 31, 2003, the National Association of Securities Dealers, Inc. (“NASD”), through its subsidiary, The Nasdaq Stock Market, Inc. (“Nasdaq”), filed with the Securities and Exchange Commission (“Commission”) the proposed rule change as described in Items I, II and III below, which Items have been prepared by Nasdaq. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons.

I. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change

Nasdaq is filing this proposed rule change to propose connectivity and testing fees for persons that are not NASD members wishing to use the Financial Information Exchange (“FIX”) protocol to connect to Nasdaq.[3]
Nasdaq proposes to implement the change to Rule 7050(d) for non-members immediately upon Commission approval, and to implement the change to Rule 7010(f) for non-members on the later of August 25, 2003, or the date of Commission approval of the proposed rule change.

The text of the proposed rule change is set forth below. Proposed new language is in italics; proposed deletions are in [brackets].

7000. Charges For Services and Equipment

Rule 7010. System Services

(a)-(e) No change.

(f) Nasdaq WorkstationTM Service

(1) No change.Start Printed Page 53768

(2) The following charges shall apply for each [CTCI] subscriber using CTCI and/or FIX:

Options

Price

Option 1:

$1275/month.

Dual 56kb lines (one for redundancy), [and] single hub and router, and optional single FIX port

$285/hour—For an Active Connection for CTCI/NWII API/FIX testing during the normal operating hours of the NTF;

$75/hour—For an Idle Connection for CTCI/NWII API/FIX testing during the normal operating hours of the NTF, unless such an Idle Connection is over a dedicated circuit;

No charge—For an Idle Connection for CTCI/NWII API/FIX testing if such an Idle Connection is over a dedicated circuit during the normal operating hours of the NTF;

$333/hour—For CTCI/NWII API/FIX testing (for both Active and Idle Connections) at all times other than the normal operating hours of the NTF.

(2) (A) An “Active Connection” commences when the user begins to send and/or receive a transaction to and from the NTF and continues until the earlier of disconnection or the commencement of an Idle Connection.

(B) An “Idle Connection” commences after a Period of Inactivity and continues until the earlier of disconnection or the commencement of an Active Connection. If a Period of Inactivity occurs immediately after subscriber's connection to the NTF is established and is then immediately followed by an Idle Connection, then such Period of Inactivity shall also be deemed a part of the Idle Connection.

(C ) A “Period of Inactivity” is an uninterrupted period of time of specified length when the connection is open but the NTF is not receiving from or sending to subscriber any transactions. The length of the Period of Inactivity shall be such period of time between 5 minutes and 10 minutes in length as Nasdaq may specify from time to time by giving notice to users of the NTF.

(B) modifications to software and/or services initiated by Nasdaq in response to a contingency; or

(C) testing by a subscriber of a Nasdaq service that the subscriber has not used previously, except if more than 30 days have elapsed since the subscriber commenced the testing of such Nasdaq service.

(4) Subscribers that conduct CTCI/API/FIX or market data vendor feed tests using a dedicated circuit shall pay a monthly fee, in addition to any applicable hourly fee described in section (d)(1) above, in accordance with the following schedule:

Service

Description

Price

NTF Market Data

Test Market Data Vendor Feed over a 56kb dedicated circuit

$1,100/circuit/month.

NTF NWII API

NWII API service to an onsite test SDP over a 56kb dedicated circuit

$1,100/circuit/month.

NTF CTCI/FIX

CTCI and/or FIX service over a 56kb dedicated circuit

$1,100/circuit/month.

NTF Test Suite

NWII API service, FIX and CTCI service over two 56kb circuits (128 kb)

$1,800/2 circuits/month.

NTF Circuit Installation

Installation of any service option including SDP configuration

$700/circuit/installation.

Start Printed Page 53769

(5) New NTF subscribers that sign a one-year agreement for dedicated testing service shall be eligible to receive 90-calendar days free dedicated testing service.

(6) “New NTF subscribers” are subscribers that

(A) have never had dedicated testing service; or

(B) have not had dedicated testing service within the last 6 calendar months.

In its filing with the Commission, Nasdaq included statements concerning the purpose of and basis for the proposed rule change and discussed any comments it received on the proposed rule change. The text of these statements may be examined at the places specified in Item IV below. Nasdaq has prepared summaries, set forth in Sections A, B, and C below, of the most significant aspects of such statements.

1. Purpose

Nasdaq currently offers market participants and other Nasdaq subscribers two messaging protocols for communicating with Nasdaq systems: Computer-to-computer interface (“CTCI”) and application programming interface (“API”). Effective August 25, 2003, Nasdaq expanded the connectivity options available to its subscribers by introducing the FIX protocol as a means of accessing SuperMontage. The FIX protocol was first developed in 1992, and since that time has become the dominant protocol for messaging among equity market participants. FIX is now used by over 50% of all U.S. firms in the equity securities business, and its users include market makers and other broker-dealers, institutional investors, electronic communications networks (“ECNs”), and national securities exchanges.

Nasdaq proposes to amend Rule 7010(f) to reflect the various pricing options that will be available to firms that connect through FIX. Firms that already have dedicated CTCI circuits will be able to use FIX over their existing circuits. Thus, these firms will be able to begin using FIX immediately, without having to incur the costs or delays associated with installation of new circuits. Moreover, the charges for circuits used to support both FIX and CTCI will be the same as the current charges for CTCI-only circuits (although a firm that increases its bandwidth usage as a result of using FIX may have to install additional circuits or pay the existing bandwidth enhancement fee of $600 per 64 kilobit per second increase if it exhausts its existing available bandwidth).[4]
However, Nasdaq will assess a “port charge” of $300 per month for each port (i.e., a connection to a server that operates off of the circuit) that uses FIX, with the first port provided free of charge to firms with direct connections. Each customer will determine the number of ports that it requires, based on its message traffic needs.

A firm that does not currently have CTCI circuits will be able to obtain circuits to support both CTCI and FIX at the same prices that currently apply to CTCI circuits, or will be able to obtain dual 128 kb circuits to support FIX only at a reduced rate of $4,000 per month (compared with the $8,000 per month charge of 128 kb circuits that support CTCI and FIX). The lower fee reflects the lower costs to Nasdaq of supporting FIX (as compared with CTCI), as well as the more limited range of functionality that will be accessible to firms through FIX.[5]
Firms will also be able to connect to Nasdaq indirectly through service bureaus and third-party private networks that provide the option of FIX connectivity to their subscribers. In such cases, Nasdaq will charge for FIX or CTCI/FIX circuits if any must be supplied by Nasdaq to establish connectivity, and will also charge the end user a port charge of $300 per month for each port that it requires, based on its message traffic needs.

Firms wishing to use FIX were able to begin testing FIX connectivity during the month of August 2003. Accordingly, Nasdaq also proposes to amend Rule 7050(d), which lists the fees for the Nasdaq Testing Facility (“NTF”). The NTF will be available for testing FIX connectivity at the same rates that currently apply to CTCI/API testing. The fees for testing without a dedicated testing circuit are: (i) $285 per hour for an active connection during the normal operating hours of the NTF, (ii) $75 per hour for an idle connection during normal operating hours; and (iii) $333 per hour for an active or idle connection at times other than normal operating hours. In addition, firms have the option of obtaining dedicated 56kb testing circuits at a rate of $1,100 for one CTCI/FIX circuit or $1,800 for two circuits usable for API, CTCI, and FIX. Hourly fees also apply to testing through dedicated circuits, with the exception of the charge for idle connections during normal operating hours. Pursuant to Rule 7050(d)(3)(A), however, the hourly fees will not be applied to testing conducted prior to August 25, 2003. Moreover, pursuant to Rule 7050(d)(3)(C), the hourly fees will not be applied thereafter to a new FIX subscriber until 30 days after it commences testing.

2. Statutory Basis

Nasdaq believes that the proposed rule change is consistent with the provisions of section 15A of the Act,[6]
including Section 15A(b)(5) of the Act,[7]
which requires that the rules of the NASD provide for the equitable allocation of reasonable dues, fees and other charges among members and issuers and other persons using any facility or system which the NASD operates or controls. By adopting a pricing structure that is responsive to subscriber needs and market demands, the proposed rule supports efficient use of existing systems and ensures that the charges associated with such use are allocated equitably.

B. Self-Regulatory Organization's Statement on Burden on Competition

Nasdaq does not believe that the proposed rule change will result in any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act.

C. Self-Regulatory Organization's Statement on Comments on the Proposed Rule Change Received From Members, Participants or Others

Written comments were neither solicited nor received.

III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action

Within 35 days of the date of publication of this notice in the Federal Register or within such longer period (i) as the Commission may designate up to 90 days of such date if it finds such Start Printed Page 53770longer period to be appropriate and publishes its reasons for so finding or (ii) as to which the self-regulatory organization consents, the Commission will:

A. By order approve such proposed rule change, or

B. Institute proceedings to determine whether the proposed rule change should be disapproved.

IV. Solicitation of Comments

Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Persons making written submissions should file six copies thereof with the Secretary, Securities and Exchange Commission, 450 Fifth Street, NW, Washington, DC 20549-0609. Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for inspection and copying in the Commission's Public Reference Room. Copies of such filing will also be available for inspection and copying at the principal office of the NASD. All submissions should refer to File No. SR-NASD-2003-118 and should be submitted by September 29, 2003.

Start Signature

For the Commission, by the Division of Market Regulation, pursuant to delegated authority.[8]

4.
The term “bandwidth” refers to the amount of data that can be transmitted over a circuit in one second. Accordingly, bandwidth enhancements allow a subscriber to send and receive a greater volume of data over a circuit.

5.
CTCI and API can be used to access a range of Nasdaq systems, including SuperMontage, ACT and Nasdaq InterMarket. At the time of its introduction in late August 2003, however, FIX may be used solely to access SuperMontage. Based on user demand, Nasdaq will evaluate whether to make additional Nasdaq functionality available through FIX in the future.